5 Questions to Ask Yourself Before You Remortgage
1. Should I Be thinking about Remortgaging Now?
That depends on your current mortgage situation. One of the strongest reasons to remortgage is that you can switch your current mortgage to a new product with improved terms and conditions. This can mean you’ll have a lower interest rate, lower fees and smaller monthly repayments.
It’s definitely worth considering in the following scenarios. You’ve slipped onto a standard variable rate because your current fixed deal has ended. Your discounted or tracker rate is soon to expire. Around 8.1 million UK households have a mortgage now. Of those almost half are on either a standard variable rate or a tracker rate.
Why? Interest rates are in the spotlight again and a hike is expected soon. The Bank of England kept the bank rate at 0.5% in February. But it said that rates were “likely to rise faster than previously expected”. This was as a result of the strong economy and inflation.
Its quarterly inflation report gave hints of the next rate rise in autumn or winter this year. Since then, it has signaled that a rise as early as May is on the cards. Another one by the end of the year is likely if the economy performs well. So consider what difference another increase of 0.5% by the autumn will make to your mortgage repayments.
2. Will I Actually Save Money by Remortgaging?
For most people, a mortgage is their heaviest financial commitment. Let’s look at what a remortgage is. It’s when you take out a fresh mortgage on your home that you already own. You do it for a number of reasons.
The first is to replace your existing mortgage and reduce your mortgage payments by securing a better rate.
Secondly you can look to protect yourself against the effects of interest rate rises for a period of time, by fixing in your mortgage interest rate for a number of years. You may also look to borrow money against your property that you can use for other purposes. This could be home improvements or big outgoing such as an overseas holiday. (Note, you may be able to do both.) In fact, nearly a third of all home loans made in the UK are remortgages. And yes, you may be able to significantly reduce your outgoings by remortgaging.
When you first take out a mortgage, you’ll usually be placed on an introductory deal of up to 2, 5 or 10 years.
It might be a discounted variable or a fixed rate. But once the time span of that deal is up, you’ll most likely move to your lender’s Standard Variable Rate (SVR).
These days SVR’s have much higher interest rates. So by switching to a new remortgage deal you can often slash your interest rate and your repayments. As your mortgage is probably your biggest financial commitment, reducing this debt may well give you the largest savings.
3. Do I need to Hang on until My Current Mortgage Deal Term is Over?
Not necessarily. Some deals do come with early repayment fees. You might think paying these won’t make financial sense. But that’s not always the case. There are still a lot of good deals around. The savings you could achieve by remortgaging may cancel out the cost of the fees.
Before you jump ship, contact your existing lender so that you’re aware of any early repayment fees. Then do your sums to discover what the best option is for you. Generally, you’ll be expected to pay your provider an early repayment fee and an exit fee. The first of these is typically 2% to 5% of the outstanding amount. The exit fee is a set sum and an administrative charge.
Also remember that many remortgage offers are valid from between three and six months. That means you could arrange with your new lender for your new remortgaging deal to dovetail with the end of your current mortgage.
4. Won’t there Be all Sorts of Legal Fees Involved with My Remortgaging?
Not always. You might have to pay legal costs to a solicitor and these are likely to be about £300 for the average property. You might also have to pay a new valuation fee, usually around £300 too. But today there’s a lot of competition among lenders. Many will cover the legal fees for you when you remortgage as part of your new deal. Don’t forget, if you do have to pay these fees, to balance them up against the long-term savings you’ll be making through your remortgaging deal.
5. How Relevant is My Credit Score to Remortgaging?
It is definitely relevant. If you have a poor credit score, it could be a problem when it comes to your remortgage application. All lenders now have to carry out financial checks on you.
If you’re considering remortgaging, check your credit score a couple of months beforehand to give yourself time to improve it.
If you know your score is not good, then be aware the best possible deals may not be available to you. You may have to pay a higher interest rate so the lender can counterbalance the higher risk it thinks you are.
But, if you use a good mortgage broker, they will be able to help you find a deal that will work for you. By examining your credit file, a mortgage broker can source those lenders most likely to agree to your application.